Euro recovers some early losses against Japanese Yen, ECB policy in focus
- The Euro rebounds from 177.85 to near 178.85 but is still 0.3% down against the Japanese Yen.
- Both the ECB and the BoJ are expected to hike interest rates in their upcoming policy meetings.
- Market experts warn that moderate Eurozone growth could cloud the ECB’s tightening path.
The Euro (EUR) claws back some of its early losses against the Japanese Yen (JPY) during the European trading session on Tuesday. At press time, EUR/JPY is down 0.3% to near 178.85 even after recovering from its intraday low of 177.85.
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.06% | 0.04% | -0.34% | -0.16% | 0.06% | 0.51% | 0.14% | |
| EUR | -0.06% | -0.03% | -0.39% | -0.21% | 0.02% | 0.50% | 0.07% | |
| GBP | -0.04% | 0.03% | -0.40% | -0.19% | 0.00% | 0.49% | 0.11% | |
| JPY | 0.34% | 0.39% | 0.40% | 0.21% | 0.42% | 0.88% | 0.51% | |
| CAD | 0.16% | 0.21% | 0.19% | -0.21% | 0.21% | 0.67% | 0.31% | |
| AUD | -0.06% | -0.02% | -0.01% | -0.42% | -0.21% | 0.47% | 0.10% | |
| NZD | -0.51% | -0.50% | -0.49% | -0.88% | -0.67% | -0.47% | -0.37% | |
| CHF | -0.14% | -0.07% | -0.11% | -0.51% | -0.31% | -0.10% | 0.37% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
The outlook of the pair remains bearish as market experts see a strong Japanese Yen’s outlook amid expectations that the Bank of Japan (BoJ) will extend its monetary tightening cycle even after hiking interest rates at the policy meeting next week.
Yen support builds as markets price rapid BoJ tightening
Analysts at Commerzbank highlight that “an interest rate hike next week is now priced in at roughly 96%, and the market expects further hikes to follow quickly thereafter,” underscoring how swiftly expectations have shifted.
In Commerzbank’s view, “as long as expectations continue to shift in such a hawkish direction, the yen should have little trouble appreciating further,” with the currency seen as well positioned to benefit from this increasingly aggressive policy path.
On the Euro front, financial markets keenly await the European Central Bank’s (ECB) interest rate decision on Thursday. Experts seem confident that the ECB will hike interest rates in the policy meeting, but warn that moderate Eurozone economic growth and higher energy prices would complicate the central bank’s monetary policy path.
According to ABN Amro, “for now, the path for the ECB is clear, and a rate hike at next Thursday’s Governing Council meeting is fully priced by financial markets.” However, they stress that “less clear now is what comes after,” setting out a baseline in which “the ECB” is expected to keep “rates on hold for the remainder of the year, and even cut rates in Q2-Q3 next year.”
Strategists at OCBC have highlighted that “higher energy prices have complicated the outlook for the ECB’s tightening cycle,” noting that inflation risks are “becoming less comfortable against a backdrop of only moderate growth.”
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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